Chapter 22
NATURE AND FORM OF SALES
RESTATEMENT
Contracts for the sale of goods are governed by Article 2 of the Uniform Commercial Code. Article 2 does not cover
investment securities, promissory notes or real estate. Article 2 covers the sale of tangible personal property either in
existence or to be manufactured.
Sales are not bailments (transfer of possession), gifts (gratuitous transfer), or options (right to buy). In those
contracts in which there are both goods and services being furnished, the issue of whether Article 2 applies is
determined by which is dominant. Buying parts to repair your own auto is a sale of goods. Taking your car in for
repair work that requires new parts is the rendering of a service.
Offer and acceptance, or formation, under UCC has different rules from those of common law. The merchant’s firm
offer is one such variation in that it was an offer that must be held open although consideration is not required.
Acceptance is made easier under the UCC by its rules allowing formation even when there are variations in the terms
in an acceptance. Other UCC differences are in the areas of output and requirement contracts, modification of
contracts, and in usage of trade or course of dealing.
Contracts for the sale of goods for $500 or more must be authenticated under the UCC statute of frauds ($5,000
under revised UCC). Formal contracts are not required and a contract may be found by grouping several forms
together or by electronic communication. The merchant’s confirmation memorandum provides an efficient way to
handle the writing requirement in fast-paced business transactions. The exceptions to the authentication requirement
include specially manufactured goods, part performance and admission under oath.
The UN Convention on Contracts for the International Sale of Goods (CISG) applies to contracts between parties of
different nations. The parties can opt out of the CISG if the parties desire. There are significant differences between
the CISG and the UCC.
Article 2A covers the lease of tangible, movable goods and provides specific rights with respect to warranties on the
goods and defaults in lease payments.
STUDENT LEARNING OUTCOMES
LO.1: Define a sale of goods and explain when UCC Article 2 applies to contracts.
LO.2: Distinguish between an actual sale of goods and other types of transactions in goods.
LO.3: Describe how contracts are formed under Article 2, and list the differences in formation standards between
the UCC and common law.
LO.4: Explain when a contract for the sale of goods must be in writing.
LO.5: List and explain the exceptions to the requirement that certain contracts be in writing.
LO.6: Discuss the purpose of the United Nations Convention on Contracts for the International Sale of Goods.
INSTRUCTOR’S INSIGHTS
Break the chapter down into four components – related Learning Outcomes are indicated in ( ):
1. What is the nature of contracts for the sale of goods?
Cover the subject matter in contracts for the sale of goods (LO.1)
Distinguish sales from other transactions (LO.2)
2. What is the form of contracts for the sale of good?
Explain when a sales contract must be in writing (LO.4)
3. What is the uniform law for international sales or the CISG?
Cover the scope of the CISG (LO.6)
4. How are leases of goods different from sales?
List the types of leases
CHAPTER OUTLINE
I. What is the Nature of Contracts for the Sale of Goods?
A. Subject matter of sales
1. Article 2 of the Uniform Commercial Code governs contracts for the sale of tangible personal property;
2. Anything movable at the time it is identified as the subject of the transaction
3. It is critical that students be able to distinguish goods from nongoods. Have the students read UCC §
2-105 to learn terminology that will be important as the sales material progresses. In particular, they
should note that § 2-105(1) states that goods “also includes the unborn young of animals and growing
4. Nature of goods
a. UCC: both new and used
5. Existing and future goods
B. Sale distinguished from other transactions
1. Bailment
2. Gift – gratuitous transfer of title
3. Contract for services (accountant hired for an audit) – governed by common law
4. Contract for goods and services
a. Mixture in one contract
CASE BRIEF: Accessory Overhaul Group, Inc. v. Mesa Airlines, Inc.
994 F. Supp. 2d 1296 (N.D. Ga. 2014)
FACTS: Accessory Overhaul Group, Inc. (AOG) provides commercial aircraft component testing,
overhauling and certification services. AOG had submitted a bid to Mesa Air Group, Inc. (“Mesa”),
and its subsidiary, Mesa Airlines, Inc., for work on its planes, which Mesa accepted in the fall of
2007.
AOG began performing work for Mesa in October 2007, and the next month the parties executed a
memorandum of understanding (MOU). The MOU provides that it “shall remain in effect until the
execution of the Contract by the Parties or its termination as described herein.” From 2007 to 2012,
AOG serviced and maintained Mesa’s wheels, tires and brakes.
In January 2010, Mesa filed for bankruptcy protection, and the bankruptcy court deemed AOG a
“critical vendor.” Mesa continued its commercial relationship with AOG, and on January 14, 2010,
the parties executed a critical trade agreement (CTA). The CTA broadly defined the parties’
relationship during Mesa’s bankruptcy case.
Sometime in 2011, after Mesa had emerged from bankruptcy, the parties resumed negotiations of a
more detailed contract. AOG’s president, Ron Byrd, worked with Scott Johnson, Mesa’s senior
director for maintenance and engineering technical administration, to draft the contract.
Byrd and Johnson exchanged several drafts of an agreement. On November 21, 2011, Johnson
sent Byrd an email, stating that he had updated the pricing per AOG’s request and that he had
included with his email “a soft-copy version as well as the PDF.” Johnson then stated, “If you’re
good, please sign and return. Then, I’ll route through our contract signature process here at Mesa.”
Byrd signed and returned the document that day.
On January 3, 2012, Johnson informed Byrd that the document had “hit a snag” in the finance
department. Mesa’s senior vice president of finance had “rejected” a term dealing with late fees,
and Byrd agreed to the removal of that term.
In March 2012, Johnson presented the November 21st document to Mesa’s president, Michael
Lotz, for his review. Lotz refused to sign the contract.
On May 9, 2012, AOG met with Mesa to discuss a rate increase. AOG unequivocally told Mesa
during the meeting that if the rate did not increase, it would cease work with Mesa right away or
“pretty quickly.” Mesa responded that it was going to put the wheel, tire, and brake work back out
for bid immediately.
That same day, Mesa issued a new request for proposals on the wheel, tire, and brake
maintenance work. AOG bid on the work at its increased rate. By the end of June, Mesa had
chosen a different vendor, and on June 30th Mesa removed Mesa’s aircraft from AOG’s servicing in
August.
AOG sent Mesa invoices seeking over $3.4 million. Mesa refused to pay the invoices on the basis
that the November 21st document is not a binding contract.
AOG filed suit and Mesa filed a motion for summary judgment on AOG’s claims.
ISSUE: Was the contract governed by UCC or common law?
REASONING: Whether the UCC or common law applies depends on whether the parties’ relationship
predominantly involved goods or services. AOG performed repair services, and while those
services may have involved goods, the primary purpose of AOG’s work was to service the wheels,
tires, and brakes of their aircraft.
In repair-contract cases, which typically involve goods and services, courts look to the “fundamental
nature of the transaction.” “The primary purpose of a repair transaction is not to sell or purchase
parts, but to change or improve the item and return it to the owner. In such cases, the provision of
goods is incidental, and the UCC does not apply.”
Here, the parties’ own words show that the primary purpose of their relationship was for AOG to
provide wheel, tire, and brake services to Mesa. Beginning with the MOU, the parties characterized
their relationship as a service-based one. The MOU provides that AOG would be the
wheels/tire/brakes maintenance and repair and management services provider for Mesa. Thus, the
MOU set forth the “terms and conditions under which AOG will provide such services to Mesa.”
Similarly, the CTA continued the parties’ service relationship.
Finally, in its complaint, AOG characterizes itself as a business that “provides parts and repair and
maintenance services for commercial aircraft.” AOG also avers that it had to purchase parts from
third parties in order to repair and maintain Mesa’s wheels, tires, and brakes. This practice was
confirmed by AOG’s CEO, who testified that AOG bought parts from vendors to perform services for
Mesa.
DISCUSSION POINTS: Thinking Things Through
Delivering Dirt
The court held that the sale of dirt was the predominant purpose of the contract. The price was based on the quantity
of dirt delivered and the language used was for sale of dirt, not hauling of dirt. Further, the seller severed the dirt from
the land, something that means the seller was selling a good. The UCC applied, and there was a valid contract.
[Paramount Contracting Co. v. DPS Industries, Inc., 709 S.E. 2d 288 (Ga. App. 2011)]
C. Formation of sales contract
1. Offer
a. Necessary detail: subject matter (quantity if more than one)
c. Firm offers (rain checks)
i. In writing
DISCUSSION POINTS: Ethics & the Law
Restocking at Overstock
This is the pertinent part of the decision in the case:
In the instant case, it is clear that Plaintiff had no actual notice of the Terms and Conditions of Use.
Defendant has also failed to show that Plaintiff had constructive notice. The Hawkins Affidavit, upon which
Defendant relies, conclusory states that by accessing Overstock’s website, an individual accepts
Overstock’s Terms and Conditions, but, crucially, does not explain how a site-user such as Plaintiff is made
aware of the Terms and Conditions. Despite Defendant’s assertion that “all customers to Overstock’s website
are advised of the company’s terms and conditions prior to their entry onto the site,” neither the Hawkins
Affidavit nor any other evidence submitted by Defendant refute Plaintiff’s sworn statement that she was
never advised of the Terms and Conditions and could not even see the link to them without scrolling down to
the bottom of the screen-an action that was not required to effectuate her purchase. Notably, unlike in other
cases where courts have upheld browsewrap agreements, the notice that “Entering this Site will constitute
your acceptance of these Terms and Conditions,” was only available within the Terms and Conditions. See
Hubbert v. Dell Corp., 359 Ill. App. 3d 976, 296 Ill. Dec. 258, 835 N.E. 2d 113, 121-22 (Ill. App. Ct. 2005)
(finding reasonable notice where three of the web pages completed by the plaintiffs contained a statement
advising customers of the terms and conditions). Hines therefore lacked notice of the Terms and Conditions
because the website did not prompt her to review the Terms and Conditions and because the link to the
Terms and Conditions was not prominently displayed so as to provide reasonable notice of the Terms and
Conditions. Very little is required to form a contract nowadays, but this alone does not suffice.
Point out to the students that this was a class action that required Ms. Hines to file suit in order to be able to stop the
restocking fees that she and others were not aware of. The hidden terms allowed the company to take unfair
advantage of all the users and purchasers at the site.
2. Acceptance (See Figure 22-1 in text)
a. Manner of acceptance is any medium reasonable under the circumstances
i. Generally defined as using the same method of communication as used by the offeror or faster
ii. Many offers to purchase request prompt, immediate, or current shipment. Discuss the
b. Acceptance timing rules – mailbox rule applies if offeree uses same method of communication or
c. Language of acceptance
i. Additional term in offer – does not result in counteroffer and rejection
ii. “Battle of the forms”: changed and additional terms (2-207); can still have a contract
CASE BRIEF: C9 Ventures v. SVC-West, L.P.
202 Cal. App. 4th 1483, 136 Cal. Rptr. 3d 550 (Cal. App. 2012)
FACTS: On July 3, 2007, SVC-West, L.P. (SVC), telephoned C9 Ventures (C9) and placed a rush order for
eight helium-filled tanks used to inflate festive balloons. C9 accepted the order and later that day
delivered the tanks without obtaining a signature on an invoice for them. A C9 employee who
delivered the tank wrote the following note on the invoice: “[N]obody would sign all running around
in lobby nobody knew who…. After accident nobody got signatures.”
On the reverse of the invoice was an indemnification provision requiring SVC to indemnify C9 for
any loss arising out of the use or possession of the helium-filled tanks. C9 later picked up the tanks,
and, weeks later, SVC paid the invoice. SVC had obtained helium-filled tanks from C9 on prior
occasions.
The invoice was on a single piece of paper, on the reverse side of which was a section entitled
“INDEMNITY/HOLD HARMLESS” (boldface omitted), which stated in part: “Customer agrees to
indemnify[,] defend and hold harmless C9 … from and against any and all liability, claims,
judgments, attorneys fees and cost of … every[ ] kind and nature, including, but not limited to
injuries or death to persons and damage to property, arising out of the use, maintenance,
instruction, operation, possession, ownership or Rental & Decor of the items rented, however
cause[d], except claims or litigation arising through the solo [ sic ] gross negligence or willful
misconduct of C9….” The reverse side of the invoice also included a section entitled “LEGAL
FEES,” which provided, in essence, that in an action to enforce “this Rental & Decor Agreement,”
the prevailing party would be entitled to recover attorney fees.
SVC did time-share presentations at hotels and often ordered helium tanks for balloons. Before
then, C9 had presented the same or similar invoice to SVC ten times, but had received the
signature of an SVC employee only six times. SVC never attempted to substitute its own form
agreement for C9’s form.
C9 typically delivered the tanks in the morning when no SVC guests were present, but on July 3,
C9’s employee, Ernesto Roque, did not arrive at the SVC premises to make the delivery until about
5:00 p.m. Roque asked SVC employee, Zayra Renteria, where to place the eight helium-filled
tanks. Renteria, who was expecting the delivery during her shift, instructed Roque to bring the
tanks up to the mezzanine level of the resort, at which point she would inform him where to place
them. Roque stacked five to seven tanks against the walls next to the service elevator. He was in
the process of bringing up another tank when a young boy, whose parents were attending the
time-share presentation, ran up to the tanks and hugged one of them, pulling it over. The tank,
which was about five feet tall and weighed 130 pounds, fell on the boy’s hand. He was hospitalized
and underwent surgery for his injuries.
SVC and C9 each paid the boy’s family to settle a lawsuit brought to recover for his injuries. C9
filed a cross-complaint against SVC to enforce the indemnification provision on the back of the
unsigned invoice. The trial court found for C9 and SVC appealed.
ISSUE: Is the indemnification clause part of the parties’ contract?
REASONING: The question: Is the indemnification provision on the back of the unsigned invoice enforceable
against SVC? SVC and C9 entered into an oral contract when C9 accepted SVC’s telephone order
for eight helium-filled tanks. Under section 2207, on which the trial court relied, additional terms
proposed in an acceptance or confirmation may become terms of the contract in certain situations.
Section 2207 is part of division 2 of the California Uniform Commercial Code, and division 2
governs transactions in goods. The oral contract between SVC and C9, however, was a lease of
personal property (the helium-filled tanks), and personal property leases are governed by division
10, not division 2, of the California Uniform Commercial Code.
Division 10 of the California Uniform Commercial Code, which governs the oral contract between
SVC and C9, does not have an analog to section 2207. The terms on the back of the unsigned
invoice would have become part of the parties’ oral contract only if SVC manifested assent to those
terms. SVC did not manifest such assent by course of dealing or course of performance, or under
basic contract law.
If this were a transaction in goods governed by division 2 of the California Uniform Commercial
Code then the issue turns on whether SVC is a merchant. If SVC is not a merchant, the terms of
the invoice are considered to be mere proposals for additional terms, which SVC did not accept.
However, an indemnification provision is deemed a material alteration to an agreement as a matter
of law, so indemnification provision on the back of the invoice would not, under section 2207,
become part of the contract between SVC and C9. Reversed.
3. Defenses to formation
a. Article 2 incorporates all common law defenses (fraud, misrepresentation)
b. Unconscionability is also a defense – contract grossly unfair or signed with disclosure
c. Illegality
4. Terms in the formed contract
a. Determination of price
b. Output and requirements contracts
i. Requirement of good faith
c. Indefinite duration contract – may be terminated with notice
d. Modification of contract
i. No consideration needed
ii. Must be voluntary
iii. Students may have some problem with the idea that modification of contracts selling goods
iv. Differs from common law
e. Interpreting contract terms
i. Parol evidence rule – once a contract is reduced to its final written form and it is complete and
5. Bulk transfers
II. What is the Form of Contracts for the Sale of Goods?
A. Contracts for the sale of goods for $500 or more must be in writing ($5,000 – revised)
B. Nature of the writing required
1. Can be complete written contract or memo; can be electronic exchanges; verifications; some form of
record
2. Terms
a. Sale or contract to sell
3. Signature
a. May be initials – anything used with intent to authenticate
CASE BRIEF: Rosenfeld v. Basquiat
78 F. 3d 84 (2nd Cir. 1996)
FACTS: Michelle Rosenfeld, an art dealer, alleges she contracted with artist Jean-Michel Basquiat to buy
three of his paintings. The works that she claims she contracted to buy were entitled Separation of
the K, Atlas, and Untitled Head. Rosenfeld testified that she went to Basquiat’s apartment on
October 25, 1982; while she was there, he agreed to sell her three paintings for $4,000 each, and
she picked out three. Basquiat asked for a cash deposit of 10 percent; she left his loft and later
returned with $1,000 in cash, which she paid him. When she asked for a receipt, he insisted on
drawing up a contract and got down on the floor and wrote it out in crayon on a large piece of
paper, remarking that someday this contract would be worth money. The handwritten document
listed the three paintings, bore Rosenfeld’s signature and Basquiat’s signature and stated:
“$12,000 – $1,000 DEPOSIT – Oct 25 82.” Rosenfeld later returned to Basquiat’s loft to discuss
delivery, but Basquiat convinced her to wait for at least two years so that he could show the
paintings at exhibitions. After Basquiat’s death, the estate argued that there was no contract
because the statute of frauds made the agreement unenforceable. The estate contended that a
written contract for the sale of goods must include the date of delivery. From a judgment in favor of
the estate, the plaintiff appealed.
ISSUE: Does a crayon-scrawled contract satisfy the statute of frauds?
HOLDING: Yes. Because this case involves an alleged contract for the sale of goods, UCC § 2-201 applies.
Under the UCC, if the writing evidences a contract for the sale of goods and is signed, the only