Business Law Chapter 19 Homework Under Some Circumstances Writing May Required The

CHAPTER 19: THE FORMATION OF SALES AND LEASE CONTRACTS 467

buying the additional quantity rather than “leading Cloud down the primrose path.”

FOR CRITICAL ANALYSIS

How might the parties to a sales contract prevent their subsequent e-mail communications from waiving the

contract’s explicit modification requirements? (Hint: How can the parties prevent contract disputes generally?)

a. 314 F.3d 289 (7th Cir. 2002).

3. Exceptions

A contract otherwise subject to the Statute of Frauds will be enforceable despite the absence of a writing

if—

Case 19.2: Glacial Plains Cooperative v. Lindgren

Gerald Lindgren, a farmer, agreed by phone to sell grain to Glacial Plains Cooperative. They reached four

agreements: two for the delivery of soybeans in the fall, one for the delivery of corn in the same season, and one for

the sale of corn in the next fall. Glacial Plains sent Lindgren four written, unsigned contracts. He made the soybean

deliveries and part of the first corn delivery, but sold the rest of his corn to another dealer. Glacial Plains bought corn

elsewhere, paying a higher price, and filed a suit in a Minnesota state court against Lindgren for breach of contract.

During a deposition and in papers filed with the court, Lindgren acknowledged his oral agreements with Glacial Plains

and admitted that he did not fully perform. He argued that the agreements were not enforceable because the written

contracts were not signed. The court denied this defense. Lindgren appealed.

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Notes and Questions

468 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION

Suppose that the agreements between the parties in this case had concerned a different product—not corn but

honey, for example. Would the result have been the same? Yes, the result would have been the same, assuming that all

of the other facts were the same so the arrangement was otherwise subject to the Statute of Frauds and its admissions

exception. The particular product was not the key to the court’s decision.

Why is there an exception to the Statute of Frauds for admissions to a court? The primary purpose of the writing

requirement in the Statute of Frauds is to demonstrate that a contract for sale has indeed been made. The exception

was created to reduce the risk of fraud: when the making of a contract is admitted in court, no additional writing is

needed to protect against fraud, at least against the party who admitted it.

still be determined.

ANSWER TO “WHAT IF THE FACTS WERE DIFFERENT?” IN CASE 19.2

Suppose that Lindgren had admitted to a lesser quantity than he had orally promised to Glacial Plains but that

other proof of the true terms was available. What might have been the result? Explain your answer. The rule stated in

the text is that a contract otherwise within the Statute of Frauds may be enforced against a person who admits a

contract for sale was made, but not “beyond the quantity of goods admitted.” The purpose of the Statute of Frauds is

to prevent fraud and provide reasonable safeguards to insure honest dealing, however. Thus, if there were other proof

of the true terms of the parties’ agreements in this case, they should be enforced for the actual amount of the agreed–

to quantity. This would be legal, equitable, and ethical.

ANSWER TO “THE LEGAL ENVIRONMENT DIMENSION”

QUESTION IN CASE 19.2

Lindgren entered into an agreement in the spring of 2006 to deliver corn to Great Plains in the fall of 2007. Should

the court have denied the enforcement of this agreement under the one-year rule? Explain. No. Under the Statute of

year rule were strictly applied here, its application should be denied.

c. Partial Performance

If payment has been made and accepted or goods have been received and accepted, an oral contract

for a sale or lease of goods is enforceable at least to the extent of the performance.

E. PAROL EVIDENCE

1. Course of Dealing and Usage of Trade

2. Course of Performance

3. Rules of Construction

If these factors contradict each other, the order of priority is express terms, course of performance, course

of dealing, and usage of trade [UCC 1–205(4), 2–208(2), 2A–207(2)].

 ANSWER TO VIDEO QUESTION LTR. C 

Are the e-mail messages that Anna refers to sufficient proof of the contract? Would parol evidence be admissible?

Yes. Under the current provisions of the UCC, a contract involving the sale of goods priced at $500 or more must be in

writing to be enforceable. The UCC has relaxed the common law requirements about what satisfies the writing

requirement, however. Any memorandum will be sufficient as long as it indicates that the parties intended to form a

contract and as long as it is signed by the party against whom enforcement is sought. “Signed” includes any symbol

executed or adopted by a party with the present intent to authenticate a writing [UCC 1–201(39)]. Thus, assuming that

 ANSWER TO VIDEO QUESTION LTR. D 

Would parol evidence be admissible? Under the UCC, so long as the quantity of goods subject to a sale is clearly

470 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION

CHAPTER 19: THE FORMATION OF SALES AND LEASE CONTRACTS 471

F. UNCONSCIONABILITY

If a court finds a contract or clause to be unconscionable at the time it was made, it can (1) refuse to enforce the

contract, or (2) enforce the contract without the clause, or (3) limit the application of the clause to avoid an

unconscionable result [UCC 2–302, 2A–108].

CASE SYNOPSIS—

Case 19.3: Jones v. Star Credit Corp.

The Joneses, welfare recipients, agreed to buy a freezer for $900 as the result of a salesperson’s visit to their

home. Sales taxes and financing charges raised the total price to $1,234.80. The freezer’s retail value was about $300.

Through a novation, the parties replaced the seller with Star Credit Corp. After paying about $620 on the contract, the

Joneses filed a suit in a New York state court against Star to have the contract declared unconscionable and reformed.

Star claimed that about $820 remained due.

The court ruled in favor of the Joneses. The contract was reformed so that they were required to make no further

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Notes and Questions

This is one of the most frequently cited and quoted cases in consumer law. The case is unusual only because the

holding was contrary to older case law. What made the contract unconscionable? Under the circumstances described

here (the known economic condition of the buyers), selling an item for $1,200 that retailed for $300. What is the

remedy? Letting the buyer keep the refrigerator for the payments already made (which also exceeded the retail price).

ANSWERS TO QUESTIONS AT THE END OF CASE 19.3

1. Why would the seller’s knowledge of the buyers’ limited resources support a finding of unconscionability? It may

approach to the transaction was knowingly exploitative and overreaching.

2. Why didn’t the court rule that the buyers, as adults, had made a decision of their own free will and therefore were

bound by the terms of the contract, regardless of the difference between the freezer’s contract price and its retail

value? The court’s decision in this case represents an exception to the rule that people will be bound by contracts into

472 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION

V. Contracts for the International Sale of Goods

The 1980 United Nations Convention on Contracts for the International Sale of Goods (CISG) governs contracts for the

international sale of goods between firms or individuals located in different countries—if the countries of the parties to

the contract have ratified the CISG (and if the parties have not agreed that some other law will govern their contract).

A. APPLICABILITY OF THE CISG

Essentially, the CISG is to international sales contracts what Article 2 of the UCC is to domestic sales contracts.

B. A COMPARISON OF CISG AND UCC PROVISIONS

Differences between the CISG and the UCC in regard to contract formation include—

1. The Mirror Image Rule

2. Irrevocable Offers

3. The Statute of Frauds

4. Time of Contract Formation

An acceptance is effective only on the offeror’s receipt (not on its dispatch, as at common law and under the

UCC).

C. SPECIAL PROVISIONS IN INTERNATIONAL CONTRACTS

1. Choice of Language

2. Choice of Forum

A forum-selection clause indicates what court will have jurisdiction over any dispute.

3. Choice of Law

In a choice-of-law clause, the parties choose the law that will govern their contract (the law must be of a

4. Force Majeure Clause

Force majeure clauses stipulate that in addition to acts of God, other eventualities may excuse a party from

liability for nonperformance.

CHAPTER 19: THE FORMATION OF SALES AND LEASE CONTRACTS 473

ADDITIONAL BACKGROUND—

United Nations Convention on Contracts for the International

Sale of Goods, Article 19

The United Nations Convention on Contracts for the International Sale of Goods (CISG) is an authoritative source

for some of the principles discussed in this chapter. The following is Article 19.

Article 19

(1) A reply to an offer which purports to be an acceptance but contains additions, limitations or other modifications is a

rejection of the offer and constitutes a counter-offer.

(2) However, a reply to an offer which purports to be an acceptance but contains additional or different terms which do

orally to the discrepancy or dispatches a notice to that effect. If he does not so object, the terms of the contract are the

terms of the offer with the modifications contained in the acceptance.

TEACHING SUGGESTIONS

1. Discuss the need to modernize common law contract rules in commercial settings. It is this need that served as the

undergoing revision.) In discussing this need, emphasize the flexibility of the UCC (for example, that it permits

2. Emphasize at the beginning of the discussion of sales contracts that students must know the definitions of goods

students to grasp the material in the rest of this unit.

3. Students should be reminded that a contract for a sale of goods is governed by the same common law that applies

to other contracts. That is, the law that was studied in the previous unit also applies to contracts for sales of goods.

The law concerning sales of goods has developed specialized aspects, however. It is these aspects that they should

emphasize in their study of the UCC.

Cyberlaw Link

474 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION

Would the electronic delivery of software, in exchange for payment, be considered a sale of goods?

DISCUSSION QUESTIONS

1. Is a contract in which a sale of services and goods combined subject to the UCC? Under some interpretations, yes.

2. How does the UCC change the effect of the common law of contracts regarding the requirement of definiteness? At

common law, when a definite offer is met by an unqualified acceptance, a binding contract is formed. Under the UCC, an

agreement sufficient to constitute a contract exists even if the moment of its making is undetermined (because the conversa–

3. How do the common law and the UCC differ regarding an offeree’s acceptance that includes terms in addition to or dif-

ferent from the offer? At common law, acceptance must exactly mirror the offer—any difference in terms constitutes a

4. How does the UCC’s obligation of good faith relate to the application of the principles concerning additional terms? The

5. How do UCC provisions differ from the common law regarding modification of contracts? Unlike the common law rule

6. Discuss, in the context of the parol evidence rule, “consistent additional terms,” “course of dealing,” “usage of trade”

and “course of performance.” The parol evidence states that if the parties to a contract set forth its terms in a writing

expressing offer and acceptance of the deal or in a writing intended as their final expression, the terms cannot be contradicted

by evidence of prior negotiations or agreements or contemporaneous oral agreements. The terms can be explained or

supplemented, however, by consistent additional terms, course of dealing, usage of trade, or course of performance.

Consistent Additional Terms. At common law and under the UCC, a court may accept evidence of consistent additional terms to

clarify or remove an ambiguity in a writing that is supposed to be a complete and exclusive statement of the agreement

7. Discuss unconscionability under the UCC. Unconscionability was a pre-UCC doctrine codified by the UCC. An

unconscionable contract is one that is so unfair and one-sided that enforcing it would be unreasonable. If a court finds a

8. How do Article 2A’s provisions differ from Article 2’s? Article 2A applies to leases of goods. Article 2A does not

9. What is the United Nations Convention on Contracts for the International Sale of Goods (CISG)? The CISG is the

international version of Article 2 of the Uniform Commercial Code and governs international sales transactions. If the parties

involved in an international sales transaction fail to specify in writing the terms of a contract (price, delivery, form of payment,

476 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION

ACTIVITY AND RESEARCH ASSIGNMENTS

2. The UCC permits courts to find contracts or contract clauses unconscionable, but the term unconscionability is not

defined in the UCC. Its interpretation is left to the courts. Have students research how the courts of their state have interpreted

the term. What contracts have been held to be unconscionable in their state?

EXPLANATIONS OF SELECTED FOOTNOTES IN THE TEXT

Footnote 7: In 2002, in Kansas, Steve Hammer and Ron Howe placed 150 head of cattle with Kevin Thompson for

grazing. Thompson sold the cattle to Roger Morris for $131,750. Morris sold them to Nick Hunt, who sold them to IBP Foods,

Inc. (now Tyson Fresh Meats). Hammer and Howe filed a suit in a Kansas state court against Morris and the others, alleging

conversion. Morris argued that he was a “buyer in the ordinary course of business” from Thompson, who was a merchant under

With respect to the entrustment doctrine, the court noted, “There are three general policies supporting the UCC

entrustment provision. First, it protects the innocent buyer who believes the merchant has legal title to the goods because the

goods are in the merchant’s possession. Second, the entrustment provision is also based on the rationale that the entruster is in

a better position than the innocent buyer to protect against the risk of the dishonesty of the dealer. Third, entrustment

facilitates the flow of commerce when buyers in the ordinary course of business are involved.”

If neither Thompson nor Morris had any experience in the cattle-trading business, how might the result in this case

have been different? Possibly. The court’s determination in that situation would have been based on different criteria,

CHAPTER 19: THE FORMATION OF SALES AND LEASE CONTRACTS 477

particularly the conduct of the parties in the transaction (did they hold themselves out as having knowledge or skill peculiar to

the goods involved?) and their intent toward the business (did they plan to continue, or was this a unique transaction?).

Suppose that the transactions in which Thompson acted as an order-buyer had occurred in other countries. Would the

court have still ruled that Thompson was a merchant? Why or why not? Yes. The transaction at issue before the court occurred

in Kansas, and the law that the court was applying to that transaction was Kansan law. If the facts were the same except for the

locations of the transactions, the documentation and other evidence of Thompson’s merchant status might have been slightly

different, but the requirements for that status and the findings and conclusions drawn from that evidence would not be

different.

Footnote 9: Consumers Packaging, Inc. (CPI), owned Anchor Glass Container Corp. CPI and Anchor supplied Encore

Glass, Inc., with wine bottles under an “Amended Agreement” that required the bottles to be made at CPI’s plant in Lavington,

British Columbia, Canada. CPI and Anchor were not obligated to make the bottles until they accepted a purchase order from

Encore. Encore could obtain discounts of 2 to 7 percent on its purchases through Anchor but was not obligated to buy a

What general principle of contract interpretation did the court apply in this case? The court identified the “sole issue

before this Court [to be] one of contract interpretation.” The court stated that “[a] contract is construed to give effect to the

parties’ intentions at the time the contract was formed. The parties’ intentions must, in the first instance, be determined from

the language of the contract. Additionally, the whole of a contract is to be taken together, so as to give effect to every part, if

reasonably practicable, each clause helping to interpret the other.”

If Encore could have established that the Amended Agreement was an enforceable requirements contract, what effect

might the sale of the Lavington plant have had on the outcome in this case? The Amended Agreement “clearly” specified the

478 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION

ANSWERS TO ESSAY QUESTIONS IN

STUDY GUIDE TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION

BY HOLLOWELL & MILLER

1. For the purposes of UCC Article 2, what is a sale? A sale is “the passing of title from the seller to the buyer for a price.”

The price may be payable in money or in other goods, services, or real estate. What are goods? Goods are tangible and

2. Who, for the purposes of UCC Article 2, is a merchant? A merchant is a person who acts in a mercantile capacity,

possessing or using an expertise specifically related to the goods being sold. That is, a merchant is: (1) a person who deals in

goods of the kind involved in the contract (a retailer, a wholesaler, a manufacturer); (2) a person who, by occupation, holds him-

self or herself out as having knowledge and skill peculiar to the practices or goods involved in the transaction; or (3) a person

REVIEWING—

 THE FORMATION OF SALES AND LEASE CONTRACTS 

Guy Holcomb owns and operates Oasis Goodtime Emporium, an adult entertainment establishment. Holcomb

wanted to create an adult Internet system for Oasis that would offer customers adult theme videos and “live” chat

room programs using performers at the club. On May 10, Holcomb signed a work order authorizing Crossroads

Consulting Group (CCG) “to deliver a working prototype of a customer chat system, demonstrating the integration of

live video and chatting in a Web browser.” In exchange for creating the prototype, Holcomb agreed to pay CCG

$64,697. On May 20, Holcomb signed an additional work order in the amount of $12,943 for CCG to install a

1. Would a court be likely to decide that the transaction between Holcomb and CCG was covered by the Uniform

Commercial Code (UCC)? Why or why not? The key factor is whether the transaction between Holcomb and TCG was

for a good or a service, because the UCC covers only goods. Most goods require some related service—their design,

assembly, installation, or manufacture—but the effort and expertise to make a good does not mean that the buyer is

buying the service instead of the good. The focus is on the buyer’s objective. Does the buyer want a good or a service?

2. Would a court be likely to consider Holcomb a merchant under the UCC? Why or why not? Under the UCC, a

3. Did the parties have a valid contract under the UCC? Explain. The contract between TCG and Holcomb is a valid

contract. It sets out all of the essential terms—price, payment, delivery, duration, and quantity—in a signed writing.

4. Suppose that Holcomb and CCG meet in October in an attempt to resolve their problems. At that time, the parties

reach an oral agreement that CCG will continue to work without demanding full payment of the past due amounts and

Holcomb will pay CCG $5,000 per week. Is the oral agreement enforceable? Why or why not? This oral agreement

would not be enforceable, because its amount, which is over $500, would bring it within the Statute of Frauds. The

Statute of Frauds requires that sales contracts for goods priced over $500 be in writing to be enforceable..

 DEBATE THIS: 

The UCC should require the same degree of definiteness of terms, especially with respect to price and quantity, as

contract law does. Contract law requires definiteness sufficient for the parties to ascertain the contract’s essential

terms when it is accepted. The UCC, in its quest to encourage more commerce, went overboard by removing this

definiteness requirement. In so doing, the UCC opened up too many possibilities for fraud and unethical behavior on

